the SEC requires a very significant amount of time and effort on the
registrant’s part. Companies frequently resist attempts by the SEC to
increase the levels of disclosure. Usually, they argue that additional
information will not necessarily be useful to a great majority of
investors. Regardless of the issue being debated, critics claim that the
cost of the extra data far outweighs any benefits that might be derived
from this disclosure.
Such contentions are not necessarily made just to avoid disclosing
information. This cost analysis has continued for most of the past four
decades. One survey from the late 1970s estimated the cost of SEC
disclosures to be more than $400 million in 1975 alone.
The table reports an estimated $213,500,000 for the fully variable
costs of 10–K, 10–Q, and 8–K disclosures in 1975. To this should be
added the separate estimate (not shown) of $191,900,000 for disclosure
related to new issues in 1975, for a total estimate of about
$400,000,000 for SEC disclosure costs in 1975. These estimates are
biased downward because they do not include various fixed costs. *
Such costs are either passed along to the consumer in the form of
higher prices or serve to retard the growth of the reporting company.
Additional SEC requirements continue to concern issuers, many of
which conclude that “the costs of mandatory SEC disclosures outweigh the
benefits” and accept delisting from the various exchanges, rather than
incurring the costs of such disclosure. SEC revenues, which constitute
real out-of-pocket costs to issuers, exceeded $3 billion in 2012. This
represents a 15-fold increase in the past 40 years.
The author of one survey (that has been widely discussed and debated
over the years) held that federal securities laws are not actually
helpful to investors.
I found that there was little evidence of fraud related to financial
statements in the period prior to the enactment of the Securities Acts.
Nor was there a widespread lack of disclosure. . . . Hence, I conclude
that there was little justification for the accounting disclosure
required by the Acts. . . . These findings indicate that the data
required by the SEC do not seem to be useful to investors.
The SEC was created, in part, to ensure that the public has fair and
full disclosure about companies whose securities are publicly traded.
However, the commission must be mindful of the cost of such disclosures.
How can the SEC determine whether the cost of a proposed disclosure is
more or less than the benefits to be derived by the public? After all,
despite SEC investigations, Bernard Madoff avoided detection for